I've pointed this out before. But it bears repeating: Fiat acquired its initial 20 percent stake in Chrysler (it has 25 percent now) for something better than free: the U.S. government provided more than $6 billion in bankruptcy exit financing to enable Fiat to pilot Chrysler through the worst downturn in the car business since the Great Depression.
But has the gravy train finally ended for the Italians?
Not completely. Marchionne and his lieutenants are currently trying to get investment banks to take a piece of Chrysler's future in exchange for the kind of liquidity and favorable terms that Fiat presumably needs to manage the Detroit carmaker's obligations to the taxpayer. If they succeed, together they can raise Fiat's percentage to 35 percent without ponying up any actual money.
At that point, Marchionne says he wants to put some skin in the game and buy an additional 16 percent by -- for the first time -- using Fiat's moolah. As far as I can tell, there will be no tangible difference between the equity that Fiat received on the way to building its 35 percent stake and equity that it will acquire through more conventional means before an assumed IPO in 2012.
Sergio is nothing if not complexly confident
Marchionne's brand of self-confidence is cryptic. Here's what he said about the debt-refinancing:
The U.S. number three automaker, controlled by Fiat under a 2009 bailout, is in talks with investment banks. It must pay back government money before the Italian company can take ownership.He believes he can do it? He better be able to do it! Otherwise, Fiat's position will be stuck at 25 percent and someone else will have to come to the table to provide the oomph that the company needs to push toward its IPO. It's unlikely, given the political environment and a presidential election next year, that Fiat will get any additional help from the government. If it really wants that majority stake, it has to restructure the old debt and make sure it has the cash on hand once it owns 35 percent to buy the remaining 16 percent.
"I believe I can do it," Sergio Marchionne, who is chief executive of both Fiat and Chrysler, said when asked about whether the debt would be refinanced by June.
"The conditions to take on an additional 16 percent (to take majority control) will be there."
But you gotta love Marchionne, playing it cool while he may very well be working his way through four packs of Merits every day (he's a noted chain-smoker). It can't be easy, particularly given that rumors are currently flying that Fiat won't be able to bring its luxury brand, Alfa Romeo, back to America until 2013.
Coincidence? Or avoiding a catastrophe?
The Alfa news suggests to me that Marchionne has elected to shift his focus entirely to the financial side of the Chrysler-Fiat tie-up, rather than preoccupy himself with his grand vision of fully combining Fiat and Chrysler's global operations and brand lineups. It's just too important right now for him to rework that $7 billion debt problem. Because if he fails, his entire risky gambit could collapse completely.